Income Tax Appellate Tribunal - Ahmedabad
M/S. Radiant Hitech Engg. Pvt. Ltd.,, ... vs The Acit, Circle-4,, Baroda on 18 December, 2019
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" A " BENCH, AHMEDABAD
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER And
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No. 1948/Ahd/2014
( नधा रण वष /Assessment Year : 2010-11)
M/s.Radiant Hitech बनाम/ Asst.Commissioner of
Engg.Pvt.Ltd. Vs. Income Tax
th
5A, 5 Floor, Neptune Tower Circle-4
Productivity Road Baroda
Alkapuri, Vadodara
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADCR 5483 Q
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से/ Appellant by : Shri Anil R.Shah &
Ms. Kinjal Shah, ARs
यथ क ओर से/Respondent by: Shri Satish Solanki, Sr.DR
ु वाई क तार ख/
सन Date of Heari ng 30/09/2019
घोषणा क तार ख /Date of Pronounce ment 18/12/2019
आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-III, Baroda [CIT(A) in short] vide appeal no.CIB/III-008/2013-14 dated 22/05/2014 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 11/03/2013 relevant to Assessment Year (AY) 2010-11.
2. The assessee has raised the following grounds of appeal:-
ITA No.1948/Ahd/2014Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -2-
1. (a) The CIT(A) has erred both in Law and in fact in confirming disallowance of Rs.47,07,974/- made by Assessing Officer out of "Labour Charges Expenses A/c."
It is submitted by your Appellant that he has been maintaining regular and proper Books of Accounts duly Audited and all expenses supported by vouchers, bills, registers etc. and the Assessing Officer not having found any lacuna or mistake in Books of Accounts he ought to have allowed entire Labour Charges as claimed by the Appellant.
(b) It is submitted that in view of facts of the consider provisions of Law entire Labour Expenses having been incurred during course of business of purposes of business and it being reasonable as per need of Business the disallowance of Rs.47,07,974/- be deleted.
It is therefore submitted that relief claimed above be allowed and the order of the Assessing Officer be modified accordingly.
Your Appellant reserves right to add, alter, amend to withdraw any or all Ground of Appeal.
3. The only issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of ₹ 47,07,974.00 on account of labour expenses.
4. The facts in brief are that the assessee is a private limited company and engaged in the business of mechanical and engineering job work. The assessee in its business hired two types of labours i.e. permanent labours/staff and temporary labours. The assessee has paid monthly salary of ₹ 12,000 to its permanent labours whereas it has paid monthly salary as high as 18,250 to its temporary labours. Accordingly, the AO sought justification from the assessee for paying more salary to ITA No.1948/Ahd/2014 Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -3- the temporary labours than the permanent labours vide notice dated 18th February 2013.
4.1. The assessee in response to such notice submitted that it is providing mechanical and engineering job work services on contract basis to the refineries/petrochemicals companies such as IPCL, IOCL, GAIL etc at the site of the customers. These services require huge manpower which is highly skilled and experienced. Such manpower is engaged for the short duration till the completion of the work assigned by the companies.
4.2. The assessee further filed the monthly summary depicting the name of the labours, site wise payment details, daily wages rate, PF and professional tax deductions. The assessee also submitted that the different temporary labours were paid wages at different rates as detailed under:
i. 416 labours were paid in the range of Rs. 475 to 505 daily wages ii. 189 labours were paid in the range of Rs. 515 to 575 daily wages iii. 239 labours were paid in the range of Rs. 600 to 750 daily wages including the amount of compensation for the overtime.
4.3. The assessee also submitted that the labourers were working under highly hazardous conditions involving higher risk to their life.
4.4. The payments of the wages was made in cash as the labourers were working in the area of remote sites and they did not maintain any ITA No.1948/Ahd/2014 Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -4- bank account but the wages was paid under the responsibility of the supervisor. The payment of wages was always paid directly in the hands of the labourers which were duly acknowledged by them by putting the initial on the wages payment register.
4.5. The assessee also submitted that the net profit for the year under consideration declared by it was comparatively higher than the earlier years. Similarly the Labour expenses incurred by it in the year under consideration are comparatively lower than the immediate preceding assessment year.
4.6. In view of the above the assessee claimed that the genuineness of the wages expenses cannot be doubted and therefore it cannot be said that the Labour expenses have been inflated to suppress the profit.
4.7. However, the AO was of the view that the salary paid to the permanent employees who are educated and important persons for the organizations. Therefore, the salary paid to them can be taken as benchmark for deciding the salary paid to the temporary labourers. As per the AO the payment to the permanent staff was much lower than the rate of salary/wages paid to the temporary labours. Accordingly he opined that the rate of salary paid to the temporary staff in excess to the permanent staff, who are more qualified and experienced, is unreasonable.ITA No.1948/Ahd/2014
Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -5- 4.8. The payment of professional tax and PF on the amount of wages paid to the temporary staff does not justify the rate of salary paid to them. Similarly, the amount of net profit declared by the assessee cannot justify the reasonableness of the wages paid to the temporary staff as the work order of one year might be executed in the another year.
4.9. The AO in view of the above, the AO worked out the excessive salary paid to the temporary staff by observing as under:
"3.6. From the submission filed by the assessee, it is evident that out of 7303 workers hired during the year, 2245 workers were claimed to have been paid wages in the range of ₹450/- to ₹800/-, whereas 5058 workers were claimed to have been paid wages in the range of ₹250/- to ₹445/-. Considering the nature of business of the assessee, the wages in the tune of ₹250/- to ₹455/- per day can be treated as reasonable and acceptable, although the assessee might have engaged helpers and unskilled labourers for whom the payment of ₹250/- is not at par with the prevailing practice and norms of payment. The claim of the assessee to this extent is acceptable. However, the claims of payments of ₹450/- and above per day to mechanical workers does nto have any justification and the same is rather contradictory to the claim of the assessee for payment of salary to its permanent employees. From the details submitted by the assessee, it is apparent that out of 7303 workers hired during the year 5058 were paid in the range of ₹250/- to ₹445/- per day which constitutes 69% of the workers hired during the year whereas 2245 workers were claimed to have been paid in the range of ₹470/- to₹750/- per day which constitutes 31% of the workers hired. Even if, it is considered that some of the mechanical workers would be competent and skilled for specialized job to whom payment might have been made above ₹500/- per day, the same cannot constitute 31% of the total hired worker force. Considering the facts and circumstances in totality, I am of the considered opinion that claims of payment to at least 40% of the work force is excessive and not justified by the reasoning provided by the assessee and in the facts as apparent from record.
3.7. The total wages claimed during the year amounts to ₹8.23 crores. Out of which ₹1,25,10,496/- amounts to payment of salary to permanent employees and balance ₹6,98,80,983/- amounts to payment towards wages.ITA No.1948/Ahd/2014
Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -6- As discussed earlier, 40% of wages which falls in the category of daily payment of ₹450/- to ₹800/- amount to ₹2,35,39,868/-, has been found as excessive in the facts and circumstances of the case. Considering the submission of the assessee and the facts as discussed above, 20% of the salary in this category is held as excessive and accordingly the amount which comes to ₹47,07,974/- is added back the total income of the assessee. Penalty proceedings under section 271(1)(c) is initiated for concealment of particulars of income."
Aggrieved assessee preferred an appeal to the learned CIT(A) who confirmed the order of the AO by observing as under:
"4.3. I have considered the appellant's submissions and the Assessing Officer's observations. The Assessing Officer has analyzed the payments made by the appellant to daily wage earners in his assessment order. The appellant has submitted its reply on the observations made by the Assessing Officer in his order. But no reply has been submitted on the most important observation made by the Assessing Officer in para 3.3 of his order which is as follows:
"It is most important to note that all the payments claimed to have been made in respect of wages have been made in cash. This may have been required because of circumstances of the business of the assessee, but the fact remains that apart from some non-discreet and obscure signatures on vouchers and registers, there is no other evidence for such payments. The assessee do not have addresses of these individuals and it is not in the position to produce them for giving evidence."
4.3.1. The failure of the appellant is contradictory to its reliance during the course of assessment proceedings as well as during the course of appellant proceedings on the fact that it had deducted provident fund and professional tax on entire payment on such labour charges. The appellant had also produced the working sheets and challans of statutory dues paid in support of such claims before the Assessing Officer for verification. Further, in the submission made during the appellate proceedings, it has been further claimed that ESI contributions were also made on such payments. For making contribution / deduction of PF, ESI and professional tax, a person is required to maintain entire details of the persons for whom such deductions / ITA No.1948/Ahd/2014 Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -7- contributions are being made. In the absence of such details, no such deduction / contribution can be made by any employer. Hence, the appellant's claim that it does not have details like addresses of such labourers is not believable.
4.3.2. As Already stated by the Assessing Officer, several such labourers have been paid over and above minimum wages. In the show cause notice issued to the appellant, the Assessing Officer had mentioned that in the salary register there was no specification as to whether the individuals who were paid higher wages are qualified technicians or general labourers. The Assessing Officer has analyzed the wage paid to such persons and has held that the claim of the appellant of Rs.450 and above per day to the technical workers does not have any justification and the same is rather contradictory to the claim of salary to its permanent employees. From the details furnished, the Assessing Officer has concluded that 2245 workers were claimed to have been paid in the range of Rs.470/- to Rs.750/- per day which constitutes 35% of the workers hired. On the basis of such analysis, the Assessing Officer has disallowed 20% of wages which falls in the category of daily payments of RS.450/- to Rs.800/- amounting to Rs.2,35,39,868/-. The appellant in its reply has changed the criteria adopted by the Assessing Officer and has stated that the total number of labourers to whom the payment made in the range of Rs.500/- to Rs.750/- per day made was only to the tune of 607 nos. But this smaller number has been computed by changing the lower range from Rs.450/- as adopted by the Assessing Officer to Rs.500/- without any justification.
4.3.3. Thus, the appellant has failed to justify the higher payments made to daily wage labourers on the basis of documentary evidence. The PF, professional tax and ESI allegedly paid by the appellant can only be evidence of the number of workers employed by it and not the genuineness of payments made to such workers. The workers to whom payments at higher rates have been done by the appellant are skilled labourers as accepted by the appellant itself and in such case their entire details must have been available with the appellant which have not been produced for cross verification by the Assessing Officer. Hence, the disallowance made by the Assessing Officer is upheld and the appeal is dismissed."
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
ITA No.1948/Ahd/2014Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -8-
5. The learned AR before us filed a paper book running from pages 1 to 23 and submitted that the payment to the labourers were paid directly under the supervision of the supervisor after deducting the professional and PF amount on the wages paid to them. The learned AR also claimed that the ITAT in the earlier year has deleted the addition made by the AO in its own case bearing ITA No. 2238/AHD/20124 for the assessment year 2008-09 vide order dated 6 December 2016.
6. On the other hand, the learned DR vehemently supported the order of the authorities below.
7. We have heard the rival contentions of both the parties and perused the materials available on record. The entire basis of the disallowance made by the AO which was confirmed subsequently by the learned CIT (A) was that the assessee has paid more wages to the temporary labours than the permanent staff. As per the AO the permanent staff was more qualified and experienced than the temporary labourers. From the preceding discussion we note that admittedly the payment of the wages to the temporary labourers was made after the deduction of professional tax and the PF as evident from the order of the AO. The relevant extract of the order is reproduced as under:
ITA No.1948/Ahd/2014Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11 -9- "3.5. The contention of the assessee that professional tax and PF has been paid in respect of wages does not in any way justify the case of the assessee as it at best can be an evidence for number of persons engaged during the year.
However, in the case of the assessee, it is not the number of workers engaged is under question, but the amount of wages claimed to have been paid."
7.1. Thus, from the above we hold that the genuineness of the payment of the wages to the temporary staff cannot be suspected as it was subject to professional tax and Provident fund. Once the genuineness of the expenses is established, then in our considered view the AO cannot occupy the armchair of the assessee and direct it to make the payment of wages at particular rate. As such it was the wisdom of the assessee for making the payment of the wages at the particular rate which cannot be questioned by the AO.
7.2. We also note that in the similar facts and circumstances the disallowance made by the AO in the case of the assessee in the earlier assessment year i.e. 2008-09 was deleted by this tribunal as discussed above. The relevant extract of the order is extracted below:
"6. We have heard both the sides and perused the material on record carefully. We noticed that the assessing officer had disallowed Rs. 35,97,667/- out of wages paid considering the same as excessive. The assessing officer simply disallowed 20% of the wage payment of out of Rs. 1,79,88,336/- as excessive without supporting material and evidences to prove that the payment made to skilled workers was excessive. The assessing officer has not disproved the supporting vouchers and registers maintained by the assessee and other related supporting record maintained like provident fund and ESI contributions indicating the genuineness of these expenses. The observation made by the assessing officer about excessive wage payment was of general nature ignoring the fact that wages were paid on the basis of number of working days. The assessing officer had not ITA No.1948/Ahd/2014 Radiant Hitech Engg.Pvt.Ltd. vs. ACIT Asst.Year - 2010-11
- 10 -
considered the fact that the nature of the business of the assessee relate to job work of mechanical and engineering on contract basis with organization like refineries .petrochemicals such as IPCL IOCL Gail. Some of the jobs were of highly labor intensive involving skilled and experienced physical labour force at the site of the work. In view of the above stated facts and circumstances, we considered that assessing officer is not justified in making disallowance of Rs.35,97,667/- without any supporting material and evidence, therefore, we uphold the decision of the Ld. Commissioner of Income Tax(A)."
7.3. At the time of hearing, the learned DR has not brought anything on record suggesting that the facts involved in the present case are different with the own case of the assessee for the assessment year 2008-09. Therefore, in our considered view the principles laid down by this tribunal in the own case of the assessee are squarely applicable to the case on hand. Accordingly, respectfully following the same we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on /12/2019
Sd/- Sd/-
( KUL BHARAT ) ( WASEEM AHMED )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 18/12/2019
ट .सी.नायर, व.(न.स./T.C. NAIR, Sr. PS
ITA No.1948/Ahd/2014
Radiant Hitech Engg.Pvt.Ltd. vs. ACIT
Asst.Year - 2010-11
- 11 -
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त(अपील) / The CIT(A)-III,. Baroda
5. /वभागीय (त(न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड5 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या/पत (त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation 02.12.2019 (word processed by Hon'ble AM in his computer by dragon)
2. Date on which the typed draft is placed before the Dictating Member 02.12.2019
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S ...
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......18.12.2019
7. Date on which the file goes to the Bench Clerk.....................18.12.2019
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order...............